ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, May 25, 2016

No Implied Warranty of Fitness for a Particular Purpose With Regard to Architectural and Design Services in Michigan...for Now

A recent case out of the Court of Appeals of Michigan, Albion College v. Stockade Buildings Inc., No. 322917 (behind paywall), gives us an example of a case where precedent was obeyed but one of the judges worried the precedent might provide the wrong result, setting up the potential for further examination by Michigan's Supreme Court. 

Plaintiff hired Defendant to build an equestrian facility. Defendant allegedly informed Plaintiff that it had "the necessary experience and expertise" to build the facility that Plaintiff required and promised it would be backed by a warranty. 

Because this is a case I'm writing up here, we all know that the story of this equestrian center does not go smoothly. The roof leaked badly. The problem was evident during construction and theoretically repaired but the roof continued to leak badly even after construction was completed. Reviews of the structure blamed the persistent problem on poor design of the facility by Defendant. 

The crux of the case was whether the agreement between Plaintiff and Defendant contained an implied warranty of fitness for a particular purpose. In Michigan, such an implied warranty is found in sales of goods governed by the UCC and sales of electricity. The court was reluctant to extend such a warranty to the architectural and design services at issue here. 

A concurrence, however, expressed hesitation with the conclusion. While reasonably correct as a matter of simple legal precedent, the concurrence had policy concerns and thought that Michigan's supreme court should review the case and extend the warranty to this situation because of the "egregious facts" of this case.  Stay tuned for what happens next!

May 25, 2016 in Current Affairs, Recent Cases, True Contracts | Permalink | Comments (0)

Tuesday, May 24, 2016

How Bad Can a New Law Graduate’s Representation Be?

Pretty darned bad! Imagine this: A law student starts giving professional legal advice while still in law school. The advice is rendered to a 78-year-old Chinese-American with limited English skills and experience with the American legal system. The student renders the advice in person, over the phone, and in extensive e-mail exchanges. He even persuades the client to “assign” the lawsuit to the student so that the student would be “better able to control the suit and properly advise” the client. In doing so, the student promises to “minimize any legal costs to [the client] before [the student] getting [sic] his license by doing all the work he can carry on for said case.” The students subsequently graduates (from a California law school not accredited by the ABA, according to the website of the State Bar of California), passes the bar, and becomes the formally retained lawyer for the client.

The new graduate sues a party on behalf of his client. The graduate also names his own client on a lawsuit for an unrelated matter “only as a matter of legal procedure.” Additionally, the graduate sues his client’s defendants! The advice he renders is thought to be legally incorrect by a mediator. The client thus fires the graduate. The State Bar of California brings disciplinary proceedings against the new graduate for conflict of interest matters as well as the unauthorized practice of law. The graduate stipulates to the charges and is suspended for some time.  Trial is brought against the graduate by his former client for professional negligence, breach of fiduciary duty, unlawful business practice, breach of contract, and fraud. The client wins a judgment of $552,412.

You guessed it! The graduate does not pay. Rather, he appears in some subsequent judgment debtor proceedings, but disputes the court’s personal jurisdictions (that argument is waived once an appearance has been made, by the way). He submits briefs to the court misciting passages from outdated Matthew Bender Civil Procedure practice treaties. He refuses to produce tax returns to show his income. The court has to order him to do so. He goes bankrupt, and produces a “myriad” of inconsistent stories in the case. As the court said, “a few examples should suffice:

  • Yan testified he sold his membership in an LLC to two persons for $650,000, but could not remember their names.
  • Yan testified that his mother provided him checks, but could not remember: whether the checks numbered more than a hundred; when the most recent check was received; or when his mother last worked or her last job.
  • Yan testified that he was the sole support for his children, supported solely by his income, which for 2014 was “less than [$]10,000.” The support included rent, which included $8,400 in 2014, but he refused to provide the identity of the person to whom the rent was paid. Yan was asked the source of the money to pay his children's rent, and he said it was from his “income.” Asked if that was from legal fees, Yan said, “I don't know.”
  • Enough is enough.”

The monetary judgment against the graduate was affirmed. Years later, at least one other disciplinary matter has been brought against the graduate.

The question is: is this just one example of an unusually rotten apple? Or does this point to the assertion made by many that California really does not need a number of unaccredited law schools on top of the already large amount of ABA-accredited ones? (But note too that even the trial court record contains “no evidence of anything, only assertions as to what occurred, though [the plaintiff’s] assertions are supported by various exhibits” and not disputed by the defendant. There were, for example, “no reporter’s transcript, nor any real evidence – that is, sworn evidence….”

Comment below! The case Th is Charles Li v. Demas Yan, 2016 WL 1757283.

May 24, 2016 in Commentary, Contract Profs, Law Schools, True Contracts | Permalink | Comments (0)

Monday, May 23, 2016

Wait a Minute, George Zimmerman is Not a Man of His Words?

Is it unthinkable to you that George Zimmerman would seek to profit from killing Trayvon Martin? No? How about reneging on one contract if he were to get an even more lucrative one?

The latter has recently been shown to be the case. The former Florida neighborhood watchman who shot the unarmed teenager in 2012 has confirmed that he has accepted an auction bid for $250,000 for the gun with which he killed Mr. Martin. Before that, he had accepted a bid for $150,000 from a Florida bar owner for the same gun, but backed out of that deal when he got a better one. Says the bar owner, “I thought [Mr. Zimmerman] was a man of his word.”

The sale drew heavy criticism from people claiming that Mr. Zimmerman was seeking to profit from the sale. Gun rights advocates claim that Mr. Zimmerman is simply exercising his legal rights under the law.

Meanwhile, Mr. Zimmerman has displayed his apparent usual lack of social skills by accusing one gun auction website that refused to sell the gun of being “Nazi loving liberal liars Unknown” (Huh? How would that work?). At least he promises to give some of the proceeds of the sale to “fight Black Lives Matter violence against law enforcement officers”…

No further comments are needed for this story.

 

May 23, 2016 in Commentary, In the News, True Contracts | Permalink

From a Colonial Cemetery to a World War II Factory to Condos and a Spa: Environmental Concerns, Contract Releases, and Secret Underground Containers Are Just the Latest Chapter

North Jersey

(Photo from northjersey.com)

I use a lot of hypos in my class based on undiscovered buried containers of environmental hazards, and I feel like sometimes my students wonder if this is a thing that actually happens. Unfortunately, yes, as a recent case out of New Jersey, North River Mews Associates v. Alcoa Corp., Civil Action No. 14-8129, proves. 

The case centers around a piece of land on which Alcoa had operated a manufacturing facility from 1917 to 1968, a facility once so central to East Coast industry that it had actually been placed on the National Register of Historic Places. The piece of land had been vacant since 1978 and became a popular site for people looking to photograph "modern ruins." It was eventually sold to North River Mews Associates and 38 COAH Associates (the Plaintiffs). Twenty years ago, the New York Times reported optimistically that the development deal would be a "win-win" the would help clean up the Hudson River shoreline. The site, however, has been plagued by a number of challenges and tragedies (several fires, workman injuries from freak accidents, etc.) that have led some people to talk about curses. (Well, it apparently had been built on an old graveyard dating back to colonial times.) The latest obstacle has now emerged in the form of, yes, previously undiscovered buried containers of environmental hazards.  

The parties were well aware that the land would have environmental contamination, as the Times article makes clear. But the Plaintiffs had worked with the New Jersey Department of Environmental Protection and believed that the property had been remediated. In 2013, however, the Plaintiffs discovered two previously unknown underground storage tanks filled with hazardous materials. The property around the tanks seemed to indicate that at one point the tanks had attempted to be burned instead of properly disposed of. The presence of these tanks, needless to say, was never disclosed by Alcoa to the Plaintiffs. 

Alcoa's stance, however, is that the purchase contracts for the land released them from liability for various claims brought against them. The court disagreed at this motion to dismiss stage, finding that the language was ambiguous. The release in the contract stated that the Plaintiffs waived the rights "to seek contribution from [Alcoa] for any response costs or claims." The court said that it was unclear whether the contribution language modified only response costs or whether it modified both response costs and claims. Was this a blanket release of all claims, or only a release of the right to seek contribution? This question, the court concluded, could not be determined on a motion to dismiss. 

At any rate, the Plaintiffs also alleged that Alcoa concealed the presence of the underground tanks, fraudulently inducing them to enter into the contracts, and the court concluded that, if true, that would be grounds for the release to be vitiated. 

This case is a great example of how long environmental issues, development deals, and contractual disputes can drag on. In 1997, the parties signed the purchase contract. Today, the parties are still trying to clean up the site and fighting over which of them ought to pay for it, with language drafted twenty years ago taking center stage. As the case continues, it will of course likely become relevant who knew about the storage tanks and when, and I am curious to see if the tanks can be dated. Since Alcoa apparently ceased using the site for manufacture in the 1960s, it will be interesting to see how much knowledge from that time period still exists. It's the latest chapter in the history of a plot of land that seems to have been a busy place for centuries. 

May 23, 2016 in Commentary, Current Affairs, In the News, Recent Cases, True Contracts | Permalink | Comments (1)

Friday, May 20, 2016

Attempt to Pass on the Hot Potato Nixed

In a perhaps somewhat unsurprising but good holding, the Seventh Circuit has nixed a company’s attempt to not live up to its contractual promises regarding the technical functions and warranties of one of its products.

The plaintiff bought an industrial refrigeration system. The contract provided that if the system “does not meet the [contractually stipulated] requirements, defendants shall immediately, upon notice, replace or repair same or remedy any deficiency without expense to [plaintiffs].” When it came to living up to that promise, however, defendants produced a slew of other excuses for the problem such as installation errors, problems with the conditions at the facility where the system was installed, flawed wiring performed by other parties, etc.

The court found that even though defendant had presented evidence of a number of equally plausible causes, it had not provided proof that those alternative causes in fact caused the problem. Defendant, said the court, had promised to “meet requirements [sic] of plan and specifications.” Since the system did not work, defendants were liable for fixing the problem under the plain language of the contract.

It’s nice to see that at least some courts do not let contractual parties get away with such attempted, after-the-fact shirking of responsibility after the fact. A contractual promise is a promise. Surely, major industrial companies have internalized the costs of potentially having to do an odd repair here and there that they don’t believe is their fault (if that truly were the case here…). It’s somewhat amazing to see the lengths some companies will go to in order not to live up to their ends of the bargain. In this case, that attempt was nixed.

The case is Dual Temp of Illinois v. Hench Control, Inc., 2016 WL 2642030.

May 20, 2016 in True Contracts | Permalink | Comments (0)

Implied Warranties of Habitability on Houses Do Not Apply to Second Buyers If the First Buyers Waived Them

A recent case out of Illinois, Fattah v. Bim, Docket No. 119365 (behind paywall), allowed the court to clarify whether an initial home buyer's waiver of the implied warranty of the house's habitability applied to subsequent buyers, or whether the second purchaser of the house could nevertheless assert a breach of warranty claim against the builder of the home. The Supreme Court of Illinois concluded that a waiver of the warranty on the part of the first buyer eliminated the second buyer's ability to exert such a claim, overturning an appellate court decision that had sent reactionary ripples through the home-building blogosphere.

In 2005, Masterklad built a house that contained a brick patio. In 2007, Masterklad sold the house to Beth Lubeck. The sale of the house included a "Waiver and Disclaimer of Implied Warranty of Habitability" in which Lubeck "knowingly, voluntarily, fully and forever" waived the implied warranty of habitability that the State of Illinois reads into all contracts involving newly constructed houses. In exchange for the waiver of the implied warranty, Masterklad provided Lubeck with an express warranty on the house. The express warranty was limited to a one-year term. There was no allegation in the case that Lubeck's waiver of the implied warranty wasn't effective and enforceable, and there were also no allegations that Masterklad hadn't complied fully with the terms of the express warranty. 

In 2010, a couple of years after the expiration of Masterklad's express warranty on the house, Lubeck sold the house to John Fattah. The sale of the house stated that it was "as is." A few months later, the brick patio that Masterklad had installed collapsed. Fattah sued Masterklad, alleging that the patio had had latent defects that violated the implied warranty of habitability. 

At the trial court level, Fattah lost, with the court concluding that the policy that permitted knowing waivers of the implied warranty would be frustrated if subsequent buyers could resurrect the claims. The appellate court, as has been mentioned, reversed, though, finding that Fattah could assert breach of the implied warranty. 

Illinois' Supreme Court disagreed with the appellate court's decision. While Illinois has previously determined that the implied warranty extends to subsequent purchasers of a house where the first purchaser has not waived the warranty, this was a different situation: Fattah was seeking to recover damages that the first buyer would not have been entitled to. Allowing Fattah to do this alters Masterklad's risk exposure in an unfair way. Masterklad sought to manage its level of financial risk by providing an express warranty with a clear termination date, as it was permitted to do under Illinois precedent. It was unfair to switch everything up on Masterklad at this late date. In fact, allowing Fattah to bring this claim would effectively mean that the implied warranty of habitability could never be waived, as it could be resurrected by any subsequent buyer--which was the opposite of what Illinois had decided when it concluded that the implied warranty could be waived. 

The disagreements within the Illinois court system about this come down very explicitly to a policy decision. The appellate court seemed uneasy with waivers of the implied warranty because of public policy concerns, and one can see its point: You like to assume the houses you buy can generally be lived in. But the supreme court's point here also makes sense: If you buy a house "as is," you've usually gotten some kind of discount. If your gamble doesn't pay off, the courts are reluctant to revive arguments you bargained away. This might boil down to, much of the time, the maxim that a deal that seems too good to be true might, indeed, be untrue, and wariness should be employed.  

May 20, 2016 in Commentary, Recent Cases, True Contracts, Weblogs | Permalink | Comments (1)

Scholarship Spotlight: "The Arbitration Bootstrap" (Christopher R. Leslie, UC-Irvine)

Arbitration-clause-300x200The federal law of arbitration has become an increasingly prominent intruder into the state law of contracts over the last few decades, largely because of the Supreme Court's interpretive morphing of the Federal Arbitration Act into a super-statute that elevates contractual arbitration clauses to a privileged and practically unassailable realm. In a recently published article in the Texas Law Review, Christopher R. Leslie (University of California - Irvine) posits--correctly, in my opinion--that courts have overreached in construing congressional intent behind the FAA. He also proposes specific limitations on otherwise unconscionable contract terms that have been "bootstrapped" onto an arbitration clause in the post-Concepcion era. Here is the abstract:

ChristopherRLeslie(UCIrvine)Arbitration clauses in contracts require consumers to waive their rights to bring litigation in court. The clauses are often unavoidable because firms include arbitration clauses in contracts of adhesion. In recent years, firms have begun to load their arbitration clauses with unconscionable terms unrelated to arbitration itself. For example, firms insert terms that shorten statutes of limitations, reduce damages, or prohibit injunctive relief. These contract terms are considered unconscionable – and, thus, unenforceable – in many states. However, the Supreme Court has interpreted the Federal Arbitration Act (the FAA) to require judicial deference to arbitration clauses. Consequently, many courts allow firms to bootstrap unenforceable contract terms into an enforceable arbitration clause in order to make those unconscionable contract terms enforceable.

The Supreme Court has invoked the legislative intent of the 1925 Congress in order to assert that the FAA applies to consumer contracts. Courts have further suggested that Congress intended arbitration clauses to be enforced as written and that this requires deference to anti-consumer terms that would otherwise be found unconscionable under state law. Finally, the Supreme Court has asserted that the FAA preempts all state efforts to police arbitration clauses, including basic notification requirements.

This Article examines the actual legislative history of the FAA and explains that Congress never intended the FAA to apply to consumer contracts. Congress was exclusively concerned with the enforceability of arbitration agreements between sophisticated businesses in commercial disputes. Congress never considered the possibility that retailers would impose mandatory arbitration clauses on their customers, let alone that these arbitration clauses would be structured to limit damages, to truncate statutes of limitation, or to otherwise remove procedural protections from consumers. The congressional intent that courts should enforce anti-consumer terms in arbitration clauses is an imagined one.

The Article concludes that courts should stop asserting that the FAA mandates enforcement of unconscionable terms so long as they reside in an arbitration clause. When confronting unconscionable terms in arbitration clauses, courts can take one of three actions: enforce the unconscionable terms; sever the unconscionable terms; or strike the arbitration clause as a whole because it is so overrun by unconscionable terms. The Article explains why only the latter two options are consistent with Congressional intent and good public policy.

The Arbitration Bootstrap is available for SSRN download here, and it is in print as 94 Texas L. Rev. 265 (2016).

May 20, 2016 in Recent Scholarship | Permalink | Comments (0)

Thursday, May 19, 2016

Settlement Agreements "in Principle" Are Not Enforceable Settlement Agreements

Negotiating a settlement can be a tricky business, with drafts going back and forth and language tweaking continually occurring. All of that document tweaking means that there's plenty of opportunity for the whole thing to fall apart, as a recent case out of Connecticut, AREH Windsor Locks, LLC v. Tops Markets, LLC, Docket Number HDSP172841 (behind paywall), reminds us. 

In the case, the parties had reached a settlement agreement "in principle," in the words used in an e-mail by one of the defendants' attorneys. The "in principle" language underlined the fact that, in fact, no true meeting of the minds had ever actually occurred. Defendants' attorneys' e-mails had warned of additional changes that would be made to the settlement agreement draft--even if those e-mails did characterize those changes as "a few" and "very minor." The last e-mail sent by defendants' attorneys before the agreement fell apart referred to the draft as "final" but explicitly noted that it was subject to the plaintiff's approval and that it needed the plaintiff's "green light." 

The court concluded that the defendants never received the requested "green light." So, although the defendants' attorneys seemed to view the agreement as "final," there had in fact never been a final agreement between the party. The defendants, it turns out, may have been counting the settlement chickens before they hatched. 

May 19, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Gasgate

Another one bites the dust. GM is the most recent car company having to admit Unknown that it has reported overly optimistic figures about the gas mileage of, in this case, some of its 2016 SUVs sold in retail trade. Before GM, there was obviously VW, but also Mitsubishi, Hyundai, and Ford, all in the span of the past two years.

GM is temporarily halting sales of about 60,000 new 2016 SUVs because the vehicles' labels overstated their fuel efficiency. The 1-2 miles per gallon mileage overstatement was the result of improper calculations, according to GM. The company plans to compensate owners for the difference in miles per gallon and announce the program in the coming week.

Does this suffice as a remedy? Arguably, no one buys an SUV because of its low gas mileage, so in this case in contrast to the VW “dieselgate,” an argument that a customer bought a car because of its fuel efficiency is less plausible. But should that let GM off the hook in this case simply by saying that it will compensate for the fuel difference? How can an accurate prediction of what that will be over the time the SUV owners keep the car even be made? - For presumably, GM is not only planning to compensate the owners for the past difference, thinking that owners can now simply sell the cars if they are no longer satisfied with them? That seems unfair to the buyers as it is common knowledge that one cannot recover the value paid for a brand new case as with these 2016 models. Should criminal liability lie? OK, perhaps not for the 1-2 mile difference, but what about the systematic fraud committed by VW? Shouldn’t someone be held criminally liable for that?

Of course, a class-action lawsuit has been brought by some buyers. Has time come for everyone – the EPA, car makers, and car buyers – to realize that there is really only so much that can be done with the fuel efficiency of regular-engine cars? After all, hybrids and now electric cars are widely available and will probably cover the needs of the vast majority of car buyers, few of whom really need an SUV. They get much better “fuel” mileage than cars with traditional engines. Still, extreme consumer fraud is committed by at least some (or one…) of these car makers. Reckoning time seems to have come.

May 19, 2016 in Current Affairs, Famous Cases, In the News, Legislation, Science | Permalink | Comments (0)

Weekly Top Ten SSRN Contracts Downloads (May 19, 2016)

TopTen Stamp-808x455

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 423 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 180 How Do LLC Owners Contract Around Default Statutory Protections?
Peter Molk
Willamette University - College of Law
3 167 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
4 138 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
5 119 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
6 118 Contract as Empowerment
Robin Bradley Kar
University of Illinois College of Law
7 118 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
8 116 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck
9 83 Understanding Privacy Policies: Content, Self-Regulation, and Markets
Florencia Marotta-Wurgler
New York University School of Law
10 78 (In)Efficient Breach of Contract
Daniel Markovits and Alan Schwartz
Yale Law School and Yale Law School

 

SSRN Top Downloads For SSRN Logo (small)
LSN: Contracts (Topic)

Rank Downloads Paper Title
1 412 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 147 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 136 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 125 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
5 115 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
6 114 Contract as Empowerment
Robin Bradley Kar
University of Illinois College of Law
7 111 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
8 89 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck
9 76 Farewell to Unjustified Enrichment?
Nils Jansen
University of Muenster
10 75 The Common Law of Contract and the Default Rule Project
Alan Schwartz and Robert E. Scott
Yale Law School and Columbia University - Law School

May 19, 2016 in Recent Scholarship | Permalink | Comments (0)

Wednesday, May 18, 2016

Overtime Pay Regulations Expanded

The Department of Labor is finalizing a rule that will extend overtime pay to 4.2 million more Americans currently not eligible for such pay under federal law. This is expected to increase wages for workers by $12 billion over the next ten years and thus contribute to the relatively stagnant wages experienced by the majority of American workers in spite of six years of continual job growth and, now, solid profits by many companies.

The earnings situation did not use to be so poor for so many people. In fact, in 1975, 62% of full-time workers qualified for overtime pay. Today, only a measly 7% do.

As Henry Ford and others knew a long time ago: more money to more people will boost the economy for everyone, including businesses.

Read more about the ruling here Unknown
.

May 18, 2016 in Labor Contracts, Legislation | Permalink

Tuesday, May 17, 2016

Materiality, Reliance and Causation All Intertwined Elements of Fraud

Jury instructions that cause a jury to answer questions indicating that a defendant has made a negligent misrepresentation, that the plaintiff reasonably relied on this statement, but that this did not cause harm to plaintiff are not so “hopelessly irreconcilable” as to be inconsistent under at least California law.

Images

In a breach of contracts case with a cross-complaint, the jury answered “yes” to whether a cross-defendant had negligently misled cross-plaintiff, further found that the misrepresentation was indeed material and that the cross-plaintiff had reasonably relied on the statements pertaining to incentive agreements and construction permits inducing the cross-plaintiff to enter into a gas station purchase and related agreements. However, the jury also found that the misrepresentation did not “substantially” influence the buyer to buy the gas station in the first place. Cross-defendant seller appealed, seeing to have the jury verdict set aside for inconsistency.

The court did not agree that the jury verdict was inconsistent to the point of being hopelessly irreconcilable. “Reliance and causation are intertwined concepts … Reliance must be thought of as the mechanism of causation in an action for breach.” However, by answering “no” to the question of whether the representations were “substantial factors” in causing harm to the cross-defendant, the jury “clearly must not have believed this to be the case,” said the court. Thus, no causation was found in spite of reliance on a fraud. In other words, the jury must have thought that the buyers would enter into the agreement anyway despite the misrepresentations.

Of course, clearer jury instructions would resolve a matter such as this in a more satisfactory way for clients than having courts of appeals second-guess what the jury must have thought. This case again shows the importance of careful linguistic drafting in the contracts context. Easier said than done, apparently…

The case also shows that contracts for pre-specified amounts of gas still exist.

The case is Anabi Oil Corporation v. fry’s 57 Freeway Investment LLC, 2016 WL 1749459.

May 17, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Thursday, May 12, 2016

Scholarship Spotlight: The Role of The CISG in U.S. Contract Practice: An Empirical Study (John F. Coyle, UNC)

Cisg_logoOngoing globalization and increasing importance of international trade has led to calls for a greater international component to the Contracts curriculum in U.S. law schools. The United Nations Convention on the International Sale of Goods (CISG) has been one of the chief beneficiaries of those calls. CISG coverage in a Contracts course, after all, singlehandedly adds treaties, international trade, and comparative law perspectives to the traditional course materials. A fair question, however, is to what extent the CISG has become relevant to the actual businesses in America--future clients of many of our students. Fortunately, John F. Coyle of the University of North Carolina has analyzed and written about some enlightening empirical evidence on that question.  Here is the abstract:

JohnFCoyle (UNC)The United Nations Convention on Contracts for the International Sale of Goods (CISG) operates as an “international” version of UCC Article 2 — it supplies the governing law when a U.S. company enters into a contract for the sale of goods with a foreign counterparty. Scholars have long debated the role that the CISG plays in contract practice in the United States. Some argue that the CISG has come to be embraced, if slowly, by U.S. lawyers. Others contend that the CISG has yet to achieve widespread acceptance within the U.S. legal community. Prior studies have sought to resolve this debate by looking to surveys of practicing attorneys. This Essay seeks to shed light on this question by looking to actual contracts entered into by U.S. companies.

The Essay draws upon a hand-collected dataset of more than 5,000 contracts — along with interviews with several lawyers who had a hand in their drafting — in an attempt to better understand the role that the CISG plays in U.S. contract practice. The Essay shows that: (1) many U.S. companies reflexively exclude the CISG without inquiring as to whether it would apply of its own force, (2) U.S companies virtually never select the CISG as the law to govern their agreements, (3) there is no industry or geographic location within the United States where the CISG has been affirmatively embraced, (4) some U.S. companies that had selected the CISG in the past now have a policy of excluding it from their contracts, and (5) U.S. companies are frequently unaware that selecting the law of a U.S. state can result in the application of the CISG.

These findings suggest a number of important insights. First, they show that past surveys of U.S. lawyers dramatically overstate the extent to which the CISG has gained acceptance within the U.S. legal community. Second, they indicate that contract practice with respect to the CISG can and does vary from nation to nation. The dataset contracts show that Chinese solar companies, in contrast to their U.S. counterparts, have embraced the CISG. Third, and finally, they highlight the potential unfairness of requiring unsophisticated U.S. companies to litigate international contract disputes under a set of treaty rules that are routinely avoided by their more sophisticated brethren.

Professor Coyle's article, The Role of The CISG in U.S. Contract Practice: An Empirical Study is available as an SSRN download here and is forthcoming in the University of Pennsylvania Journal of International Law.

May 12, 2016 in Recent Scholarship | Permalink | Comments (0)

Removing Confidential E-Files When Quitting: Not a Good Idea

If you and I worked in an industry with highly sensitive information (assuming that we do not), it might be one thing if we thought we could email confidential information to our private email accounts and copy such information to a memory stick without finding out. But if a C-level employee at a high-tech company does so, does such conduct not rise to an entirely different level of at least naivety, if not deliberate contractual and employment misconduct?

A court will soon have to answer that question. Louis Attanasio, former head of global sales for an IBM cloud computing unit has been sued Seasonal-celebrations-lose-lost_property-name-identity-father_christmas-jdon16_low by IBM for breach of a contractual confidentiality clause, misappropriation of trade secrets, and violation of a non-compete agreement when he left – information in hand – to work for direct competitor Informatica.

In 2016, Attanasio allegedly started sending confidential information to his private email account, including draft settlement agreements between other IBM employees who had left to work for competitors. Before leaving IBM, Attanasio was asked to return a laptop to the company, which claims that he cpied files to a USB storage device.

Once again, the extent of the traceability of our electronic actions at work has become apparent. I continually remind my students of this to help them avoid “traps” such as the above or, frankly, simply to remind them that they should not spend much, if any, time on their computers not working (most seem to use their own electronic devices anyway these days, but still… and doing so is also very visual in an office setting.). Employers frequently complain about the work ethics of new college graduates, so it might be worthwhile to remind our students of what seems obvious to us.

May 12, 2016 in E-commerce, Famous Cases, In the News, Labor Contracts, True Contracts, Web/Tech | Permalink | Comments (0)

Weekly Top Ten SSRN Contracts Downloads (May 12, 2016)

Top-10 Scrolling

SSRN Top Downloads For SSRN Logo (small)
Contracts & Commercial Law eJournal

Rank Downloads Paper Title
1 418 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 176 How Do LLC Owners Contract Around Default Statutory Protections?
Peter Molk
Willamette University - College of Law
3 160 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
4 143 Contract, Consent, and Fiduciary Relationships
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law
5 137 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
6 117 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
7 117 Contract as Empowerment
Robin Bradley Kar
University of Illinois College of Law
8 115 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
9 95 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck
10 79 Will-Substitutes and Creditors: Canada and the US
Lionel Smith
McGill University, Faculty of Law, Paul-André Crépeau Centre for Private and Comparative Law

 

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LSN: Contracts (Topic)

Rank Downloads Paper Title
1 412 Major League Soccer as a Case Study in Complexity Theory
Steven A. Bank
University of California, Los Angeles (UCLA) - School of Law
2 147 Algorithmic Contracts
Lauren Henry Scholz
Yale University - Information Society Project
3 136 The Logic of Contract in a World of Treaties
Julian Arato
Brooklyn Law School
4 125 Contracts Without Terms
Tess Wilkinson‐Ryan
University of Pennsylvania Law School
5 115 (Mis)perceptions of Law in Consumer Markets
Oren Bar-Gill and Kevin E. Davis
Harvard Law School and New York University School of Law
6 114 Contract as Empowerment
Robin Bradley Kar
University of Illinois College of Law
7 111 Illegality as a Defence in Contract
Andrew Burrows
University of Oxford - Faculty of Law
8 89 The Rise of the Platform Economy: A New Challenge for EU Consumer Law?
Christoph Busch, Hans Schulte-Nölke, Aneta Wiewiórowska-Domagalska and Fryderyk Zoll
University of Osnabrück - European Legal Studies Institute, European Legal Studies Institute Osnabrueck / Radboud University Nijmegen, Universität Osnabrück - European Legal Studies Institute and Universität Osnabruck
9 76 Farewell to Unjustified Enrichment?
Nils Jansen
University of Muenster
10 75 The Common Law of Contract and the Default Rule Project
Alan Schwartz and Robert E. Scott
Yale Law School and Columbia University - Law School

May 12, 2016 in Recent Scholarship | Permalink | Comments (0)

Wednesday, May 11, 2016

Law Professors Letter in Support of CFPB Proposed Arbitration Regulation

Myanna Dellinger blogged about the proposed regulation here.  Jean Sternlight of UNLV is circulating this letter in support of the CFPB proposed regulation.  The letter is comprehensive and persuasive.  At least 140 law professors have signed it so far.  If you would like to add your name to the list, please email Jean Sternlight at jean.sternlight@unlv.edu no later than May 20.

May 11, 2016 in Commentary | Permalink

Banks and Class Action Prohibitions as “Contract Gotchas”

Contracts preventing consumers from filing class-action lawsuits against banks may soon be illegal if a proposed ruling by the Consumer Financial Protection Bureau takes effect. A hearing on the ruling will be held on Thursday, May 12, 2016.

For quite some time, clauses requiring consumers to arbitrate disputes with banks and banning class action lawsuits against banks in cases of disputes have been common. According to a prominent attorney to testify at Thursday’s hearing, one of the effects of required arbitration has been to make class action lawsuit highly unlikely.  Of course, a contractual clause outright prohibiting class action suits means that if a consumer wants to litigate the dispute and arbitration, he or she would have to do so in an individualized suit. Because of the low amounts typical at issue in bank-v-consumer disputes, such clauses have had the effect of preventing litigation. Even if it comes to litigation between banks and consumers, “consumers can easily be outgunned” by savvy banks who additionally are said to “like to drag things out,” a problem when consumers at the same time have to take time off from work to litigate.

The proposed rule would not ban arbitration clauses. Rather, it would prevent contract clauses from including language that bans consumers from joining class-action cases. Such bans are common, and they have become more widely enforced since the United States Supreme Court in 2011 held that the FAA requires state courts to honor bans even if state law prohibits them.

According to Consumer Bureau Director Richard Cordray, "signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong." Cordray also calls the current practice a "contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing."  The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness calls the proposed rules a “backdoor ban” on arbitration clauses, said to provide individual consumers the chance for “more financial relief than a class-action suit.” The Pew Charitable Trusts’ Consumer Banking Project states that it is probably true that banks will ditch arbitration clauses if the CFPB’s rules take effect, but “consumers will probably be just fine.”

May 11, 2016 in Current Affairs, In the News, Legislation, True Contracts | Permalink | Comments (0)

Tuesday, May 10, 2016

No "Safe Learning Environment" Term Implied in Enrollment Contract with a Private High School

A recent case out of New Jersey, Zelnick v. Morristown-Beard School, Docket No. L-1947-13, had some interesting things to say about the contractual relationship between a private high school and the students enrolled (and parents of those students). 

The case arose out of an alleged inappropriate sexual relationship between the plaintiffs' daughter, then a student at the school, and her teacher. The plaintiffs' daughter was a minor throughout the alleged sexual relationship; at present, however, the plaintiffs' daughter is an adult who is estranged from her parents and took no part in the case brought here. 

The court refused to get into the details of the relationship between the plaintiffs' daughter and the teacher, finding that the details were mostly irrelevant. It was sufficient to state that there seemed to be some knowledge on the part of the school of inappropriate behavior with other female students on the part of the teacher for a few months before a fateful school trip to Greece, which many of the accusations surrounded. At the time of the school trip, although the teacher violated the school's policy during the trip, the plaintiffs actually spoke up on his behalf, praising his assistance when their daughter fell ill on the trip. Apparently, it later was learned, at least part of the illness was faked, orchestrating "alone time" for the plaintiffs' daughter and the teacher apparently, and the plaintiffs did not know of the inappropriate relationship between their daughter and the teacher at the time that they spoke up on his behalf. 

Shortly after the Greece trip, the school was informed by multiple sources that the plaintiffs' daughter and the teacher had engaged in inappropriate conduct during the trip. The school delayed for months contacting the Division of Child Protection and Permanency (the "DCPP") regarding the persistent rumors surrounding the teacher. It's unclear how the DCPP got involved, although once they did, the teacher fled the country during the investigation into his behavior. At the time, the plaintiffs' daughter was in her senior year at the school, although she was not attending school physically due to assessment by a psychologist that the persistent rumors about her relationship with the teacher were causing her to suffer too much stress. 

Among other claims, the plaintiffs raised a breach of contract claim based on their daughter's enrollment contract with the school. The school argued that the terms of the contract were that they would provide the plaintiffs' daughter with an education in exchange for tuition. The plaintiffs argued that the contract implied that the learning environment provided to their daughter would be safe; the school rebutted that. The court agreed with the school: There was no "safe learning environment" requirement implied in the contract with the school. The plaintiffs' attempt to create one, the court said, was an attempt to convert tort claims into contract claims. 

This is an interesting ruling to me because, on the one hand, I think all of us would hope that the schools we send our children to are striving to provide a safe learning environment. Very few of us would agree to enter into bargains with schools without a belief that the students' best interests must be at the school's heart. On the other hand, while this isn't a school shooting case, I can see this being a complicated promise in an age where this country has grown to expect that our schools are basically under attack.

It does seem to me that, in the court's recitation of the facts, the school behaved poorly here. The school had notice of persistent reports from multiple sources, including other students, other parents, and other school employees, that the teacher's behavior had been personally witnessed to be inappropriate, and for months the school seems to have taken no action and, indeed, to have allowed the teacher in question to act as one of a few chaperones on an international trip. It reminded me of the case Myanna wrote up a few days ago about the contractual duty of good faith in Texas and the lack of fiduciary relationship between universities and students. Maybe we (or just me) place more trust in other people and entities' obligations toward us/me than we/I should. 

The plaintiffs, of course, did have tort claims here--gross negligence and negligent infliction of emotional distress--but the court ruled they did not have standing to pursue them. Those claims seem to have belonged to the plaintiffs' daughter, who, unfortunately, was no longer speaking to her parents, allegedly because of the parents' disapproval of her relationship with her teacher. 

May 10, 2016 in Recent Cases, Teaching, True Contracts | Permalink | Comments (0)

Monday, May 9, 2016

An "Administrative Mistake," or a Waiver of a Defense? (hint: it's a waiver)

 The situation in this recent case out of the District of Nebraska, Kermeen v. State Farm Fire & Cas. Co., No. 8:14-CV-416 (behind paywall), was possibly the result of lack of communication between departments at a large insurance company. But, even if the error was entirely innocent, it had very real consequences. Maybe a court might save you from clerical errors, but this alleged administrative mistake on the part of State Farm didn't win the court's sympathy at all. 

The Kermeens had a homeowner's insurance policy from State Farm. In March 2014, during the term of the policy, a fire damaged the Kermeens' house and they made a claim for their losses. State Farm claimed to have sent the Kermeens a letter the following month asserting that it appeared that the fire had been set on purpose and that such activity on the part of the Kermeens would void the policy as of the date of the fire. 

In June 2014, a couple of months later, a hail storm damaged some of the Kermeens' property. The Kermeens filed another claim with State Farm. State Farm never paid for the hail claim and instead continued investigating the circumstances of the fire. Finally, in November 2014, the Kermeens filed suit alleging that State Farm breached the homeowners policy by failing to pay the hail claim. State Farm responded in an answer in January 2015 that the Kermeens had intentionally set the March fire and that therefore the policy was void as of March 2014 and so didn't cover the hail damage in June. State Farm didn't formally reject either the fire or the hail claim until July 2015. 

The problematic thing for State Farm, however, was that it had been accepting premiums from the Kermeens on the homeowners policy this entire time. Even when State Farm finally formally declared the policy void as of March 2014, it failed to refund any of the premiums that the Kermeens had paid between March 2014 and July 2015. State Farm stated that it fully intended to refund those premiums in July when it denied the Kermeens' claims, and that its failure to do was "an administrative mistake." State Farm also continued to accept premiums on the homeowners' policy from the Kermeens after July, another thing that State Farm claimed was "an administrative mistake." So, altogether, State Farm accepted nearly two years' worth of premiums from the Kermeens before it finally refunded them in February 2016--after the summary judgment motion in question in this case had been filed, arguing that State Farm had waived its ability to rely on voidness due to its failure to refund the premiums. 

State Farm tried to argue that, by refunding the premiums eventually, it indicated that it was not waiving the voidness defense. State Farm also asserted that its other statements to the Kermeens, including telling the Kermeens in communications several times that the policy would be void as of the date of the fire and its answer filed in this case, further indicated that it had not waived the voidness defense. 

The court disagreed with State Farm. In contrast to the clerical error that was forgiven in the CitiMortgage case, the court wasn't inclined to overlook State Farm's "administrative mistake" here. The court stated that State Farm knew that it was going to declare the policy void as early as January 2015 when it answered the complaint and still failed to refund any premiums to the Kermeens for over a year. This failure to return any of the premiums was inconsistent with a stance that the policy was void and thus constituted a waiver of State Farm's ability to raise voidness as a defense. It didn't matter that State Farm may have repeatedly declared the policy void to the Kermeens if State Farm continued to retain the premiums under that policy--and, indeed, continued to accept further premiums. Therefore, the Kermeens were entitled summary judgment for the damages caused by the hail storm. 

May 9, 2016 in Recent Cases, True Contracts | Permalink | Comments (0)

Friday, May 6, 2016

Facebook Has to Face Illinois's Biometric Information Privacy Act

 Facebook in Laptop

Facebook was sued recently by a number of Illinois residents for its "Tag Suggestions" program. The complaint alleges that Facebook's facial recognition technology, employed to suggest to its users who they should be tagging in their uploaded photos, collected users' biometric data derived from their faces, secretly and without procuring informed consent, in violation of Illinois's Biometric Information Privacy Act ("BIPA"). Facebook moved to dismiss the complaint, in part on the fact that its Terms of Use require disputes with users to be governed by California law and therefore Illinois' BIPA was not applicable. But the recent decision by the Northern District of California in In re Facebook Biometric Information Privacy Litigation, Case No. 15-cv-03747-JD (behind paywall), found that Facebook has to contend with Illinois's BIPA. 

The court performed an analysis of whether or not Facebook's Terms of Use was a binding contract on the user plaintiffs. Before registration, each of the users was required to click a box or a button that clearly indicated that by doing so, they were stating that they had read and agreed to the Terms of Use. Therefore, the court found that the Terms of Use were binding on the users. In addition, every time Facebook updated its Terms of Use, it sent each user an e-mail informing them of modifications, as well as placed a "jewel notification" on their Facebook feeds. Therefore, there was no real dispute that each user had agreed to the current Terms of Use. There was also no dispute that the Terms of Use contained a California choice-of-law provision. 

Nevertheless, the court refused to enforce the provision. The court noted that part of the test in evaluating whether to enforce a choice-of-law provision is to consider whether California's law would be contrary to the "fundamental policy" of Illinois's law and, if so, whether Illinois would therefore have a "materially greater interest" than California in the case at issue. Here, Illinois is one of only a few states with a statute concerning biometrics; California has no such statute. The court found that Illinois's BIPA represented a fundamental policy of Illinois to protect its residents from unauthorized use of their biometrics, and that applying California law here instead of Illinois law would interfere with Illinois's policy. In fact, the court noted, enforcing the choice-of-law provision would effectively eliminate any effectiveness of BIPA whatsoever, because there would be no ability for Illinois residents to protect themselves against national corporations like Facebook. Therefore, the court found, Facebook has to deal with Illinois's BIPA, regardless of Facebook's attempts to limit the relevant laws of its service to only California's laws. 

This all leaves for another day whether the Tag Suggestions program actually does violate BIPA. 

May 6, 2016 in Current Affairs, In the News, Recent Cases, True Contracts, Web/Tech | Permalink | Comments (1)